SOYA REPORT 7 DECEMBER

There's a battle for crop acres in the U.S., and I expect farmers to plant more soybeans and less corn in 2008. This tug-of-war will continue right into the spring.

We're not alone. The battle for more crop production is, in fact, being played out throughout the world, with more attention now focused on Brazil. Here are my initial forecasts for Brazil this crop season.


Corn and soybeans both up
Brazilian corn acres will increase three to four percent as farmers respond to the $6-per-bushel non-GMO new-crop bids. We'll see 21.5 million acres of full-season corn planted and 7 million acres of double-crop corn. The potential corn crop in Brazil will increase to nearly 2 billion bushels, up 100 million bushels from last year. Most of the increase will be exported to Europe.

Sugarcane acreage will increase by eight to 10%, to as much as 18 million acres on the most highly productive farmland in Brazil.

Brazilian soybean acreage will increase by three to eight percent in 2008 due to the $10 May futures price.

Where will all the acres come from? Pastureland is being plowed up and converted to row crops throughout Brazil. The estimate is for 4 to 6 million new row-crop acres to be planted this year. It won't be as productive the first year it's converted from pasture and will produce less-than-trend line yields this year.

The table below shows my most recent Brazilian soybean supply-demand projections. This current forecast projects a crop of 2.2 billion bushels with total use also at 2.2 billion bushels. This gives ending stocks of just 60 million bushels. Clearly, there is little margin for error in Brazilian soybean production.

The crop is off to less than an ideal start since dry weather delayed planting by two weeks or more in over 50% of the main production areas. This makes soybeans more susceptible to rust, it delays harvest, and delays when Brazilian soybean exports will start.






Three yield possibilities
The table above shows three different yield projections in Brazil of 42, 40, and 38 bushels per acre (BPA). We have an 80% chance that the final soybean yield will fall in that range.


If it's 42 BPA, then Brazil can increase exports by 80 million bushels in 2008 and have ending stocks of 113 million bushels. But with the new pasture acres, this higher yield is very unlikely.
A normal yield of 40 BPA would allow exports to increase by 35 million bushels from last year.
A national yield of just 38 BPA would drop Brazil's soybean exports by about 40 million bushels from last year. This would create one of the tightest global supply-demand positions ever seen.

If the soybean acreage is 55 million acres and the national yield in Brazil is less than 38 BPA, odds are good that soybean prices will rally to new all-time highs by next spring.

In December, soybean planting in Brazil will be 90% to 100% complete. This is the rainy season, and farmers are busy spraying for weeds and rust. With the tight global supply-demand equation, any weather threats (rust or drought) will create extreme market volatility.






What to do?
Develop a disciplined market plan using all the tools available. I have two different plans depending on which marketing tools you're able to use.

For one group, I encourage producers to be 40% to 60% sold on cash soybeans and to have 20% to 30% of 2008 soybeans priced ahead. They will make four to six scale-up sales over the next two to three months and have 100% of the beans sold by the end of March.

In the other, more aggressive plan, the farmers have sold their cash soybeans and are holding July call options or call spreads on 60% to 100% of their 2007 crop. The crop is sold. For a known risk (the cost of the call options), they can still benefit if futures rally sharply higher.


Winners make incremental sales
Which plan works best for you depends on your cash position, futures market knowledge, and the amount of risk you're willing to take.

The winners from last year made incremental 10% to 20% sales into the market as prices rallied in the spring and summer of 2007.

The losers sold too much too soon or held on all the way into August. Every marketing year is different, but you can adapt and use good marketing concepts that will allow you to maximize farm profits.